Repeal is Not Enough: How States Can Survive the Impending Medicaid Crisis

Mark your calendars for July 1st. That is the day that Obamacare’s failed health care model will crash head on to the fiscal reality of strained states budgets. For all the headlines that Obamacare’s individual and business mandates get, perhaps the dirtiest little secret about Obamacare is that over half of the health insurance coverage gained through the law is accomplished through Medicaid.

Medicaid already covers one of every six Americans, eats up 22 percent of the typical state budget, and total federal and state Medicaid spending has quintupled over the past two decades. States have been able to prolong the day of reckoning thanks to more than $100 billion of federal “stimulus” poured into state budgets, but that ends July 1. Worse, Obamacare has added strict “maintenance-of-effort” eligibility requirements that are preventing states from reforming their Medicaid programs to keep them from busting their budgets. All 29 Republican governors signed a letter to Congress and the White House asking that the Medicaid maintenance-of-effort requirements for eligibility in the new health care law be repealed. But as Heritage analyst Brian Blase explains, repeal is not enough:

Besides calling for increased flexibility on eligibility, states should also maximize opportunities to better manage their programs, control costs, and put in place fundamental long-term reforms. … An alternative to the government-centric structure of Medicaid is a premium-support model, under which individuals take state vouchers to purchase private health plans, including employer-based coverage, that best suit their needs. Enrollees would benefit from increased choice and improved access to providers. … Until a premium-assistance model can be implemented, officials can still take a number of actions to reduce the pressure on Medicaid’s finances:

* Increase enrollee cost-sharing. Overutilization of medical services is a serious budgetary concern at all levels of government. Cost-sharing would give program recipients some “skin in the game” and exert downward pressure on program spending. Cost-sharing should increase when program beneficiaries utilize expensive care settings, such as the emergency room, for non-emergency care needs.
* Sliding scale for premiums. Premiums for Medicaid should be based on a sliding scale so that households with greater amounts of income pay a greater portion of the premium. The availability of funds is limited, and the sliding scale would provide greater funds to those who need them more. At the same time, the sliding scale would reduce both the perverse incentives that discourage upward mobility and the crowd-out of employer-sponsored insurance for individuals at the top of the eligibility thresholds.
* Manage program eligibility. Within federal guidelines, states should limit program eligibility to what is affordable to taxpayers. Eligibility should include a strong income and asset test that is reviewed several times a year to ensure the temporary nature of the safety net program. States might also wish to tighten retroactive eligibility.

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